Remedies in circles

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Mohan R. Lavi on a case of cross-litigation

Mohan R. Lavi

GLOBALLY, laws typically provide for simultaneous dispute remedies for giving litigants opportunities to get justice. The provision of simultaneous remedies under law could itself be litigious as was seen in the Jindal Praxair Oxygen Company (P) Ltd vs Praxair Pacific Ltd (2005 61 SCL) case that was decided by the Company Law Board, Chennai.

JPOCL was a joint venture with PPL and Jindal Vijayanagar Steel Ltd.

The eighth annual general meeting (AGM) of the company was held in December 2003, wherein all the agenda items were disposed of, save the appointment of auditor. JVSL objected to the reappointment of a Big 4 firm, which had been the auditor for years.

The AGM was adjourned endlessly since JVSL preferred not to attend the AGMs, crippling, thereby, the quorum needed to appoint an auditor.

JVSL invoked Section 224(3) of the Companies Act, 1956, which empowers the Central Government to appoint any other statutory auditor. Reacting to this, PPL filed an application under Section 167 of the Companies Act, which authorises the CLB to call or direct the calling of an AGM.

PPL protested, saying that any order passable under Section 224(3) would render the proceedings under Section 167 infructuos and requested the CLB to mandate a stay on the Section 224(3) order.

PPL argued that the Section 224(3) application was premature, as the AGM had only been adjourned, judicial impropriety would come into play due to the Section 167 application, PPL could not reap the fruits of litigation in view of the application to the Central Government and JVSL had given a special notice for moving a resolution as written in Section 225 of the Companies Act for appointment of an alternative auditor as a result of which it cannot embrace Section 224(3).

Among the cases it got judicial assistance from was ITO vs Mohammed Kunhi (AIR 1969 SC 430), wherein it was held that the Income Tax Appellate Tribunal (ITAT) was authorised to stay proceedings relating to recovery of tax.

JVSL argued that the CLB must exercise the powers given under Section 167.

These powers cannot be extended to include stay of any proceedings before a quasi-judicial or statutory authority.

The CLB does not have writ or appellate jurisdiction over the Central Government and any such interference would amount to abuse of the process of a statutory authority.

It also advised PPL to challenge the order under Section 224(3) in any court of law. The Central Government Standing Counsel, which was also party to the proceedings, argued that Sections 167 and 224(3) were two independent provisions, exercisable by different authorities and, hence, the CLB cannot dictate what the Central Government can or cannot do.

The CLB, relying on Cannanore Whole Body C.T.Scan and Research Centre (P) Ltd vs Saibunnisa S.V. (1998 93 Comp.Cases 99), ruled that the CLB has inherent powers to make such orders as may be necessary to meet the ends of justice or to prevent abuse of the process of the CLB.

However, the CLB shall be guided by the principles of natural justice and act in its discretion according to the rules of reason, justice and law without violating any of the provisions of the Act.

This discretion has to be regulated according to the known rules of law.

The CLB did not concur with the Kunhi case, as it felt that decision was under different circumstances where the ITAT exercised the appellate jurisdiction which it had while staying the recovery proceedings.

In the instant case, PPL had an alternate remedy of approaching the High Court against any order of the Central Government under Section 224(3).

Although the proceedings under Section 167 would be rendered nugatory and PPL may meet with barren success, the Bench dismissed the application.

Is it time for a company law ombudsman to reduce cross-litigation and assist the Government in the difficult task of simplifying the mammoth Companies Act?

(The author is a Hyderabad-based chartered accountant.)

(This article was published in the Business Line print edition dated August 4, 2005)
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